Eskom unbundling fails to cut solvency risk, Futuregrowth says

Futuregrowth Asset Management said that despite efforts to make South Africa’s Eskom profitable, including a process of unbundling its divisions into separate entities, “the core problem of debt” has yet to be addressed.

The utility that reported a fourth straight full-year loss on August 31 has very high finance costs on a debt pile of about R400 billion ($28 billion). Eskom expects to separate its transmission division from the utility by the end of the year, with generation and distribution units to follow in 2022.

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“All these interventions do not address Eskom’s core problem: the debt trap,” Sithembiso Garane, Futuregrowth’s head of listed credit, said in a note on Thursday.  “Regardless of the divisionalisation and liberalisation of the energy sector, a debt solution is still required.”

“Primary energy cost pressure and the inability to contain employee costs continue to pose a significant challenge in the utility expenditure reduction program,” Garane wrote.

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Source: moneyweb.co.za